BIS fears emerging market maelstrom as Fed tightens

"Debt ratios have reached extreme levels across all major regions of the global economy, leaving the financial system acutely vulnerable to monetary tightening by the US Federal Reserve, the world's top financial watchdog has warned. The Bank for International Settlements said the wild market ructions of recent weeks and capital outflows from China are warning signs that the massive build-up in credit is coming back to haunt, compounded by worries that policymakers may be struggling to control events. "We are not seeing isolated tremors, but the release of pressure that has gradually accumulated over the years along major fault lines," said Claudio Borio, the bank's chief economist. The BIS said total debt ratios are now significantly than they were at the peak of the last credit cycle in 2007, just before the onset of global financial crisis. Dollar loans to emerging markets (EM) have doubled since the Lehman crisis to $3 trillion, much of it has been borrowed at abnormally low real interest rates of 1pc. Roughly 80pc of the dollar debt in China is on short-term maturities". More (VIEW LINK)


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